Both new and established businesses need to raise finance. This topic considers why businesses need to raise money and the sources that can be used to do this.

Understanding why a business needs to raise finance makes it much easier to select the most appropriate source of finance. Businesses need finance for a number of reasons.

New and established businesses may have to consider internal and external sources of finance for a variety of reasons. This topic explores the various sources of finance used by these businesses.

An external source of finance refers to money that comes from outside the business. Using external sources of finance offers firms the opportunity to raise large sums of finance, but can bring disadvantages such as heavy interest charges.

There is no single 'best source of finance for a business. The most appropriate source of finance will depend on the circumstances. The factors that influence decisions on which source or sources of finance to use can vary between new and established businesses.

There is no single 'best source of finance for a business. The most appropriate source of finance will depend on the circumstances. The factors that influence decisions on which source or sources of finance to use can vary between new and established businesses.

Businesses can raise finance from a number of sources. The most important are retained profits, the sale of assets, bank loans, mortgages, and the sale of shares.

Managing cash flow effectively is an important part of the successful management of new and existing businesses. This topic introduces you to cash flow and cash flow forecasts and explains their importance.

Cash flow is the money that flows into and out of a business on a day-to-day basis. There are several reasons why a business would receive cash inflows as well as many likely causes of outflows of cash from the business.

Managing a business's cash flow effectively is a very important task for managers. If a business does not have enough cash available to pay its bills, it could fail.

If a business has a positive cash flow position, it means that it avoids periods in which it has a negative cash balance. This offers a business a number of benefits.

It is possible to construct a table of the inflows and outflows of cash that are expected by a business's managers. When such tables are drawn up as part of the process of planning a business's activities, they are called cash flow forecasts. However, when completed as a record of trading, they are called cash flow statements.

It is common for a business to experience cash flow problems. These can be managed if the managers and entrepreneurs are aware of the possibility and are prepared to take the necessary actions to overcome them.

A cash flow problem arises when a business struggles to pay its debts as they become due. If a business experiences negative net cash flow over a period of time, its cash position can become very weak.

When faced with cash flow problems, managers may use a range of solutions to cash flow problems

All of the proposed solutions to cash flow problems have disadvantages. Managers have to take these into account when deciding how to tackle a cash flow problem.

Cash flow is entirely different from profit. Profit is the extent to which a business's revenue exceeds its total costs over some period of time. In contrast, cash flow is the way in which money moves through the business.

Cash flow is the money flowing into and out of a business over a period of time. Businesses forecast their cash flows to reduce the chance of facing cash flow problems.

Managers and entrepreneurs need to have a basic understanding of business finance or their businesses are very unlikely to be successful. This topic introduces you to some important terms and shows you, with a number of examples, how managers can calculate their business's costs, decide whether an investment is worthwhile and determine whether it will make a profit or a loss.

Basic financial terms

Businesses need assets such as buildings, machinery and vehicles to produce goods and services. They buy these assets to use in producing goods and services and in the hope of making a profit.

A business can only make a profit when its sales revenue is greater than its costs. If revenue is less than costs, the firm will make a loss. Break-even is a level of production or output at which revenue from sales equals the total costs of production. In this situation, a business will not make a loss or a profit.

Businesses' total costs of production are made up of fixed costs and variable costs.